Wealth Check: 'Should my pension or nest-egg take priority?'

Sally Morris works as a middle manager in the NHS and lives in Hertfordshire. She wants to know if she should increase her pension contributions or prioritise her savings.

Sally Morris works as a middle manager in the NHS and lives in Hertfordshire. She wants to know if she should increase her pension contributions or prioritise her savings.

Ms Morris rents out her property and although she lives with her partner in a mortgage-free home, the endowment policy on the letting is not expected to pay off the mortgage.

Ms Morris wants to know if she should change the endowment to a repayment mortgage. She would also consider increasing her monthly payments using savings or rental income to pay off the mortgage early. The couple would like a second home abroad, which can also be rented - they are considering Spain, France and Portugal.

SALLY MORRIS, 40, MIDDLE MANAGER IN NHS

Salary: £33,000

Debt: Mortgage.

Property: 25-year endowment mortgage (13 years remaining) of £40,000 on a rented property now worth about £90,000. Predicted shortfall on the endowment.

Savings: Standard Life Homeplan Endowment, Bradford and Bingley Fixed-rate Isa. National Savings Isa, Bradford and Bingley ToIsa, Liverpool Victoria investment bond, NDF Higher Income and Growth Plan; Scottish Friendly bond.

Pension: 16 years in NHS.

We put her case to Kevin Anderson of Budge and Company, David Brunning at Brunning Newman Houghton and Nick Breton at The MarketPlace.

PENSION

Ms Morris is in a strong position as a member of the NHS pension scheme, which is based on final salary and, as a public sector scheme, is very unlikely to fail.

She has a number of options to boost her pension, including buying extra "years" in the NHS scheme, joining the Health Service's additional voluntary contributions (AVC) programme or taking out a free-standing AVC from a private pension company.

Given her strong position, Mr Anderson suggests that Ms Morris waits until 2006, when the Government will introduce new pension rules, before committing more to her retirement plan. Mr Brunning says that if she does want to top up her pension, added years in the NHS scheme is the best option.

Mr Breton says that paying more into a pension, assuming Ms Morris can afford to do so, will be her best option because tax relief is upfront.

SAVINGS AND INVESTMENTS

David Brunning points out that Ms Morris's savings and investments are focused on cash and investments that generate income rather than capital growth. She is paying income tax on the proceeds, but not using her annual capital gains tax allowance, currently £8,200. If Ms Morris becomes a higher-rate taxpayer, this will strengthen the case for her to look again at her savings.

Mr Anderson suggests Ms Morris could raise her exposure to equities, by making a regular payment into a unit trust, Oeic or investment trust. He adds that if she is maximising contributions to a cash Isa, a stocks and share Isa should be next, in order to protect as much of her money as she can from tax.

Mr Brunning cautions that Ms Morris's NDF Higher Income & Growth Plan investment, is a "precipice bond". She should ask the company for a projection of its value, as they have not performed well recently.

MORTGAGE AND ENDOWMENT POLICY

Ms Morris should consider looking for a better mortgage deal, even though she now lets her property, Mr Brunning suggests.

Working out the endowment shortfall is harder. Her insurer's estimates are based on a return of 6 per cent, but Mr Brunning believes this is optimistic: Standard Life has announced a bonus rate of around 2.5 per cent from February this year.

The panel agrees that the most sensible option is for Ms Morris to switch her loan to a repayment mortgage; Mr Anderson suggests that if she can pay off the mortgage early, she should do that too. But she should keep her endowment policy going as a form of saving, as it "remains an excellent long-term investment", according to Mr Brunning. She might also be eligible for a windfall, should Standard Life demutualise.

Mr Breton says that, as Ms Morris has quite a small mortgage and little time left to run, switching to a repayment loan might be her best option. But she should take professional advice.

OVERSEAS PROPERTY

Mr Breton recommends she has the mortgage in the same currency as the property. Taking out a euro mortgage minimises risks. But relatively few UK lenders offer euro mortgages; those that do want a deposit of 25 to 30 per cent of the purchase price. Buying expenses are also usually higher in continental Europe.

An alternative is to release equity on a UK property. This is an option for Ms Morris as her main home is mortgage free. She should seek professional advice as early as possible.

* If you would like a financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
science
News
Richard Dawkins dedicated his book 'The Greatest Show on Earth' to Josh Timonen
newsThat's Richard Dawkins on babies with Down Syndrome
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Extras
indybest
PROMOTED VIDEO
Travel
Dinosaurs Unleashed at the Eden Project
travel
Arts and Entertainment
music
Sport
football
Life and Style
This month marks the 20th anniversary of the first online sale
techDespite a host of other online auction sites and fierce competition from Amazon, eBay is still the most popular e-commerce site in the UK
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

    £45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

    Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

    Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

    AIFMD Business Analyst / Consultant - Investment Management

    £450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

    Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

    £450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

    Magic circles: Artist Olafur Eliasson

    Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home